Euro zone government bond yields lagged behind U.S. Treasuries, which dropped sharply after data releases on Friday, sending the spread between German and U.S. borrowing costs to its lowest level since early April.
U.S. job growth weakened in August while the unemployment rate increased, confirming that labour market conditions were softening, boosting bets on Federal Reserve rate cuts.
Stronger economic prospects and expectations of “higher for longer” policy rates slowed the decline in euro area yields.
Money markets priced in 70 basis points of Fed monetary easing by December, implying two 25 bps cuts and an 80% chance of a third move, from 60 bps before economic figures.
They also indicated a 25 bps rate cut in September, along with a 10% chance of a 50 bps move – up from zero before the data release.
Germany’s 10-year bond yield, the benchmark for the euro zone bloc, fell five bps to 2.67%. It hit 2.80% on Tuesday,…
